Breaking Bad Habits

July 23, 2016 • We recently attended two real estate conferences: the Urban Land Institute Spring Meeting in Philadelphia, and the International Council of Shopping Centers annual RECON show in Las Vegas. Along with thousands of our real estate colleagues, we shared market intel about getting deals done while the getting remains good.

In keeping with this urgency, we’re picking up where we left off in last month’s post Getting Rid of Dinosaurs about form leases that hinder negotiations. Here are some out-of-the-Black-Box pointers for how to turn form lease relics into 21st-century frameworks for lasting landlord/tenant relationships. To do this, you’ll need to address three key issues:

Modernize Your Form Lease

First, get rid of provisions that address every one-off landlord/tenant situation your company has ever encountered. For example, how often is a tenant going to be endangered by hazardous materials emanating from adjacent properties? Does any landlord really expect its tenant to wait an infinite amount of time for delivery of its premises? Is it really necessary to protect against a landlord putting an elevator shaft in the middle of your premises?

Second, do away with provisions so one-sided as to be virtually unenforceable. Can either party expect to enforce an indemnity against its own gross negligence? What sense does it make to insist on harsh liquidated damages provisions when actual damages are not anticipated or even considered? In a recent California Supreme Court case, the court struck down a standard penalty in a national retailer's form lease because the harm anticipated during the lease negotiation bore no relationship to the penalty.

Keep It Simple

Third, keep it simple. Although it is tempting for attorneys to elaborate, incorporating every conceivable nuance into every lease provision bogs down negotiations and often creates ambiguity rather than certainty. Is it really necessary to require a landlord to deliver a certificate of occupancy for the premises when the landlord’s work is complete AND there is written evidence that the landlord’s construction obligations have passed governmental inspections?

Break That Bad Habit

I can only imagine the money and time spent by countless landlords and tenants that have labored (and likely will continue to labor) over these and other similarly non-essential provisions in form leases used year after year.